JAL takes first step toward government-backed restructuring
Friday October 30, 2009
Japan Airlines yesterday said it is seeking guidance on a turnaround plan from Enterprise Turnaround Initiative Corp. of Japan, a move that represents a formal first step toward a likely government-backed restructuring.
ETIC is a newly created quasi-government entity designed to help rescue struggling companies. JAL said in a statement that it initiated a "preliminary consultation" with ETIC "to decide whether it would support the restructuring of our group." It added that "under" ETIC guidance, it would "render our maximum efforts in preparing a restructuring plan at the earliest opportunity that is satisfactory to all and strenuously strive to revitalize our business."
ETIC, which is charged with buying debt from strapped Japanese companies and providing them with specialists to help oversee restructuring, is designed specifically to target companies that "have revitalization potential but are carrying excessive debt."
Turning to ETIC was recommended by a task force set up by Transport Minister Seiji Maehara to advise both JAL and the government on the best course of action. Task force head Shinjiro Takagi told reporters that "reviving JAL will require a substantial amount of money, including public money."
According to Japanese media reports, ETIC can provide loan guarantees to enable skittish banks to lend JAL money and also orchestrate direct financial support from the government. It additionally would oversee JAL's restructuring plan, determining the right number of job cuts and route reductions. JAL initially proposed cutting 6,800 jobs but reportedly will be forced to slash at least 13,000 positions
Maehara told reporters yesterday that JAL "is not your ordinary company" and the government is committed to keeping the carrier afloat. "If JAL were to stop flying, there would be serious repercussions for Japan's economy," he said. But he added that significant cost-cutting will be demanded by the government in exchange for public support.
Maehara's Democratic Party of Japan last month replaced the long-entrenched Liberal Democratic Party after a decisive election victory. He complained yesterday that the previous government mistakenly provided bailout money to JAL without forcing the carrier to reform its cost structure. For example, it received around ¥100 billion ($1.1 billion) in government-backed loans in June without being required to make significant changes. "Under the previous administration, there was no real due diligence, no real turnaround strategy," he said. In addition to mandating a tough restructuring plan, he said he also is pressing for legislation that would ease JAL's heavy pension burden.
by Aaron Karp
ATWOnline